‘Smart beta’s the new kid on the block, but Eugene Fama and Kenneth French have been doing this for more than 30 years in their Dimensional [Fund Advisors] funds,’ said Nick Lincoln, director of Radlett-based advice firm Values to Vision Financial Planning (V2V).
His model portfolios have always had exposure to Dimensional funds. ‘I’ve made very few changes to my portfolios since setting up my business in 2008 and have embraced the passive argument for more than a decade,’ he said. ‘But I’ve increased exposure to small cap and value passive.’
Lincoln did this around three years ago by increasing allocation to the Dimensional Global Targeted Value fund. ‘It effectively weeds out large cap growth stocks and you have whatever’s left,’ he said.
Lincoln decided to increase exposure to these factors because of the ‘mounting evidence’ for a small cap and value premium. ‘It surfaces sufficiently to make it a viable component of a client’s long-term equity portfolio,’ he said.
Another change is to slightly reduce the UK bias. ‘It is home bias,’ he said. ‘We think the world ends at the channel. If most of your equity exposure is in London-listed companies, you’re missing out on Wall Street. You are making a conscious decision to turn your back on the largest capitalist country in the world, which is nuts.’
Watch and wait
Lincoln is solely responsible for V2V’s investment decisions, although he does not make too many of them.
‘I don’t follow asset class prices,’ he said. ‘My clients are investing for 20 to 50 years, so what has happened in the past 12 months is irrelevant.’
V2V has five model portfolios. ‘You don’t need to overanalyse asset allocation models,’ said Lincoln. ‘So I use from 20% equity up to 100% equity.’
He also avoids third-party asset allocation models. ‘Actuaries should be lined up against a wall and shot,’ he said. We do not take him literally on that last point!